CHAPTER # 02

THE COINAGE
The use of precious metals
The British coinage Clipping and debasing the coinage

The gold standards

BANKING AND THE NOTE ISSUE

BANK-NOTES:
Priests were the early bankers London goldsmiths became well-known and trusted in 17th century

BANKING AND THE NOTE ISSUE

PRIVATE NOTE-ISSUE: Gradually early bankers gave up their work as goldsmiths & concentrated on more profitable activities; accepting deposits & lending money

Other merchants and industrialists joined them and collectively, they formed large group of private banks and issued their own private notes
A series of Bank Act in 19th century brought a gradual end to private note-issue & the power of note-issue became vested in the Bank of England

THE CURRENT NOTE-ISSUE

THE FIDUCIARY ISSUE: An issue of the bank notes which is not backed by the gold is said to be fiduciary, i.e. issued in trust. The note-issue must, however be seen in context of the money supply as a whole.

THE CURRENT NOTE-ISSUE

LEGAL TENDER: The term applies to any form of money which must by law be accepted in payment of a debt. For e.g. In Britain, Bank of England notes are legal tender for any amount, & so too is the 1 coin. Thus cheque or postal order are not legal tender

THE CURRENT NOTE-ISSUE

THE GOLD RESERVES: In early days, gold reserves were used as backing for note issue. Since 1932 when the Exchange Equalization Account was setup, it was to be used as backing for sterling in the foreign exchange market together with the banks reserves of foreign currency.